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The parable of the broken window was introduced by Frédéric Bastiat in his 1850 essay Ce qu’on voit et ce qu’on ne voit pas (That Which Is Seen and That Which Is Unseen) to illustrate why destruction, and the money spent to recover from destruction, is actually not a net-benefit to society. The parable, also known as the broken window fallacy or glazier’s fallacy, demonstrates how opportunity costs, as well as the law of unintended consequences, affect economic activity in ways that are “unseen” or ignored.

The parable

Bastiat’s original parable of the broken window from Ce qu’on voit et ce qu’on ne voit pas (1850):

Have you ever witnessed the anger of the good shopkeeper, James Goodfellow, when his careless son happened to break a pane of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation—”It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?”

Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.

Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier’s trade—that it encourages that trade to the amount of six francs—I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.

But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, “Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen.”

It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.^[1][2]

Differing interpretations

It may be a fallacy if one only considers the positive effects for the glazier and those whom the glazier may now purchase from, without considering the harmful effects for the shopkeeper and those whom the shopkeeper now cannot purchase from:

If a vandal breaks all the windows of a man’s house, and the man pays $2000 to have them repaired, the man now only has usable windows in his house, whereas in contrast, he would have had usable windows and the $2000, assuming that $2000 is what it costs to repair his windows. He could have been planning to buy a suit with that $2000 and thus he’d have still given work to someone, which stimulates the economy just as giving work to the glazier does. Or he might have invested that $2000 in the stock of a company, so the company could provide another computer terminal and hire someone to use that computer; now he cannot create those benefits to society whilst simultaneously having usable windows in his house.^[3]

The implications of the fallacy can also be extended to the glazier. The onlookers assume that this needed window will have a positive effect for the glazier, but in order to assume this, the glazier must have time and supplies available which currently have no other use. If the glazier has other jobs which demand his time and supplies, this additional job now represents a negative constraint for the glazier in that he may not be able to complete his other jobs on time.

In short, the broken window (and the boy who broke it) did not provide any net benefit to the town, but rather made the town poorer in future benefits by at least the value of one window, if not more.

Bastiat’s argument

Austrian School economists, and Bastiat himself, apply the parable of the broken window in a different way. Suppose it was discovered that the little boy was actually hired by the glazier, and paid a franc for every window he broke. Suddenly the same act would be regarded as theft: the glazier was breaking windows in order to force people to hire his services. Yet the facts observed by the onlookers remain true: the glazier benefits from the business at the expense of the baker, the tailor, and so on.

Bastiat argues that people actually do endorse activities which are morally equivalent to the glazier hiring a boy to break windows for him:

Whence we arrive at this unexpected conclusion: “Society loses the value of things which are uselessly destroyed;” and we must assent to a maxim which will make the hair of protectionists stand on end—To break, to spoil, to waste, is not to encourage national labour; or, more briefly, “destruction is not profit.”What will you say, Moniteur Industriel^[4]—what will you say, disciples of good M. F. Chamans, who has calculated with so much precision how much trade would gain by the burning of Paris, from the number of houses it would be necessary to rebuild?^[1][2]

One of the problems with arbitrating between different interpretations of Bastiat is that Austrian economists and those who refer to Bastiat are making a statement about total wealth in society, whereas those they are criticizing are making a statement about a snapshot of production in a given year. Bastiat is not addressing production – he is addressing the stock of wealth. In other words, Bastiat does not merely look at the immediate but at the longer effects of breaking the window. Moreover, Bastiat does not only take into account the consequences of breaking the window for one group but for all groups, for society as a whole.^[5]

Economists of the Austrian School frequently cite this fallacy and claim that it is a common element of popular thinking. The 20th century American economist Henry Hazlitt devoted a chapter to it in his book Economics in One Lesson.^[6]

Limitations

The interpretations assume that the window, which was broken, had a positive value and that the shopkeeper is a rational agent. In the broader scope, offsetting factors can reduce or even negate the cost of destruction. For example, new technologies developed during a war and forced modernization during postwar reconstruction can lead to an increase of individual and national productivity, and can even lead to a net increase in overall productivity.^[6]

The loss of a window pane may not have the same downstream opportunity costs as the broken glass pane, at equal replacement value to the glazier or shop keeper. There is likely more future utility in a window pane because it prevents damage to a house i.e. pipes freezing, rain entering the house etc.. If a shopkeeper’s store window remains broken the future opportunity cost is even greater. Who would want to shop at a boarded up store?

The anger of the shopkeeper indicates that he perceives this breakage to be a loss that cannot be just written off. It is a loss that must be repaired to sustain a future business venture even if it means extra effort and sacrifice.

The opportunity cost of war

The argument can be made that war is a benefactor, since historically it often has focused the use of resources and triggered advances in technology and other areas while reducing unemployment. The increased production and employment associated with war often leads some to claim that “war is good for the economy.” However, this belief is often given as an example of the broken window fallacy. The money spent on the war effort, for example, is money that cannot be spent on food, clothing, health care, consumer electronics or other areas. The stimulus felt in one sector of the economy comes at a direct—but hidden—cost to other sectors.

Bastiat himself argued against the claim that hiring men to be soldiers was inherently beneficial to the economy in the second chapter of That Which is Seen, and That Which is Not Seen, “The Disbanding of Troops”:

It is the same with a people as it is with a man. If it wishes to give itself some gratification, it naturally considers whether it is worth what it costs. To a nation, security is the greatest of advantages. If, in order to obtain it, it is necessary to have an army of a hundred thousand men, I have nothing to say against it. It is an enjoyment bought by a sacrifice. Let me not be misunderstood upon the extent of my position. A member of the assembly proposes to disband a hundred thousand men, for the sake of relieving the tax-payers of a hundred millions.

If we confine ourselves to this answer – “The hundred thousand men, and these hundred millions of money, are indispensable to the national security: it is a sacrifice; but without this sacrifice, France would be torn by factions, or invaded by some foreign power,” – I have nothing to object to this argument, which may be true or false in fact, but which theoretically contains nothing which militates against economy. The error begins when the sacrifice itself is said to be an advantage because it profits somebody.

Now I am very much mistaken if, the moment the author of the proposal has taken his seat, some orator will not rise and say – “Disband a hundred thousand men! Do you know what you are saying? What will become of them? Where will they get a living? Don’t you know that work is scarce everywhere? That every field is overstocked? Would you turn them out of doors to increase competition, and weigh upon the rate of wages? Just now, when it is a hard matter to live at all, it would be a pretty thing if the State must find bread for a hundred thousand individuals? Consider, besides, that the army consumes wine, clothing, arms – that it promotes the activity of manufactures in garrison towns – that it is, in short, the god-send of innumerable purveyors. Why, any one must tremble at the bare idea of doing away with this immense industrial movement.”

This discourse, it is evident, concludes by voting the maintenance of a hundred thousand soldiers, for reasons drawn from the necessity of the service, and from economical considerations. It is these considerations only that I have to refute.

A hundred thousand men, costing the tax-payers a hundred millions of money, live and bring to the purveyors as much as a hundred millions can supply. This is that which is seen.

But, a hundred millions taken from the pockets of the tax-payers, cease to maintain these taxpayers and the purveyors, as far as a hundred millions reach. This is that which is not seen. Now make your calculations. Cast up, and tell me what profit there is for the masses?

In addition, war destroys property and lives. The economic stimulus to one nation’s defense sector is offset not only by immediate opportunity costs, but also by the costs of the damage and devastation of war to the country it attacks. This forms the basis of a second application of the broken window fallacy: rebuilding what war destroys stimulates the economy, particularly the construction sector. However, immense resources are spent merely to restore pre-war conditions. After a war, there is only a rebuilt city. Without a war, there are opportunities for the same resources to be applied to more fruitful purposes. Instead of rebuilding a destroyed city, the resources could have been used to improve and enlarge the city or build a second one.

While neither example of the fallacy necessarily supports any form of pacifism, the point made in each case is that war is inherently destructive rather than productive; the only way war can bring the countries involved in it any economic benefit is through the destruction of lives and property that are having a negative effect on a nation’s economy, such as the lives of an oppressive totalitarian dictator and his enforcers and any records these oppressors may have been keeping on their subjects in order to blackmail them. War brings no other kind of net economic benefit to the combatants, and therefore any argument in favor of having a war based on the premise that war will stimulate productivity is fallacious because the premise is false; going to war will invariably decrease that nation’s net productivity.

One example of the costs of war sometimes given is the many projects postponed or not started until after the end of World War II in the United States. The pent-up demand for roads, bridges, houses, cars, and even radios led to massive inflation in the late 1940s. The war delayed the commercial introduction of television, among other things, and the resources sent overseas to rebuild the rest of the world after the war were not available to the American people for their direct benefit; neither did the war enrich any of these other nations.

According to Hazlitt:

“It is never an advantage to have one’s plants destroyed by shells or bombs unless those plants have already become valueless or acquired a negative value by depreciation and obsolescence. … Plants and equipment cannot be replaced by an individual (or a socialist government) unless he or it has acquired or can acquire the savings, the capital accumulation, to make the replacement. But war destroys accumulated capital. … Complications should not divert us from recognizing the basic truth that the wanton destruction of anything of real value is always a net loss, a misfortune, or a disaster, and whatever the offsetting considerations in a particular instance, can never be, on net balance, a boon or a blessing.”^[7]

The cost of special interests and government

Bastiat, Hazlitt, and others equated the glazier with special interests, and the little boy with government. Special interests request money from the government (in the form of subsidies, grants, etc.), and the government then forces the taxpayer to provide the funds. The recipients certainly do benefit, so the government action is often regarded by the people as benefiting everyone. But the people are failing to consider the hidden costs: the taxpayers are now poorer by exactly that much money. The food, clothing or other items they might have purchased with that money will now not be purchased—but since there is no way to count “non-purchases,” this is a hidden cost, sometimes called opportunity cost. Bastiat referred to this in his essay as “what is not seen”. Because the costs are hidden, there is an illusion that the benefits cost nothing. Hazlitt summarized the principle by saying, “Everything we get, outside the free gifts of nature, must in some way be paid for.” Robert A. Heinlein popularized a summarization/acronym of the concept called “TANSTAAFL” (There Ain’t No Such Thing As A Free Lunch).

Common examples of special interest groups practicing the broken window fallacy might be:

• Arguments for public works projects as a way to reduce unemployment. The hidden cost here is of course the tax payer’s money, and the special interests are the jobs created by the public works.
• Arguments for increasing the number of government employees, in order to provide employment.^[8]
• Arguments to restrict immigration on the grounds that immigrants will take domestic jobs. This ignores the fact that immigrants, once employed, will earn and spend money on goods and services, creating new jobs to make up for the old ones they took.^{[citation needed]}
• Arguments for protectionist measures such as tariffs, subsidies and/or other regulations in order to protect local industries. Eliminating country A’s tariffs on country B’s products would allow country A consumers to buy said products more cheaply, leaving them more money with which to buy other products, and would give citizens of country B more money with which to buy Country A’s products.^[9]
• Arguments for instituting a minimum wage, or raising the minimum wage.^[10]
• Arguments for wind farms and other renewable energy. While the more expensive sources have environmental benefits, the increased “green jobs” are offset by others in the economy. It might be said that this argument ignores the cost of environmental devastation.^[11]
• Cash for Clunkers which was a program in which the U.S. government paid consumers to trade in low gas mileage cars for newer, higher gas mileage cars, and the trade-ins were subsequently destroyed.^[12] A similar program allows for trade-ins of old energy inefficient appliances for more energy efficient appliances.
• Depreciation as a means to increase exports by making goods less expensive to foreigners, and to decrease the demand for imports—which are made more expensive—in order to stimulate the domestic economy. What is not seen is the fact that domestic workers must do more work for less pay, and can purchase less with the proceeds. Essentially, the entire nation takes a pay cut.
• Inflation as a means to stimulate economic activity by making savings worth less and goods worth more, creating an imperative to purchase sooner rather than waiting. What is not seen is the increased risk of no cushion of savings, the stimulation of large amounts of consumer debt, and the loss of purchasing power due to salaries lagging inflation.
• Planned obsolescence, an item designed to break or become undesirable after some period of time.
• Advertisements promoting the replacement of old items with new items; for example, replacing last year’s fashions with this year’s

With all of these examples, care must be taken that every factor is taken into account, just as happened in the parable of the broken window: does one know all the costs and benefits? E.g. hiring people to do nothing or to break things and repair them is probably a bad idea. This is the case in the military spending and government employment examples. But if the hired people or the spent money actually result in useful work (however, the term “useful work” is a fallacy in itself – it is not the work that is useful but only the product or result produced by the work), things are less clear. It depends on the amount of useful work delivered compared to the amount of money spent if the spending was a good idea. This is the case in the cash for clunkers, the public works, and the renewable energy examples. This analysis is only necessary, however, when the accomplished result has a future benefit beyond the simple fact of delivering work. As Bastiat shows, the simple accomplishment of useful work can never make such projects a net positive; the glazier also performed useful work. But if a project improves the efficiency of future work, there can be a net benefit. For example, a public works program to build roads creates no wealth simply by virtue of building the road. But in the future, that road may increase trade by improving the efficiency of moving goods and reducing future costs. In such a case, the road may be a net benefit – it is an investment, rather than destruction followed by redistribution. The point of the broken window parable is to show that one cannot ignore the hidden costs of taking wealth to build the road when totaling up any such “net benefit.”

See also

• Jevons paradox
• Spending multiplier
• Creative destruction

References